I’m familiar with the basic concepts of sub2 purchases but in practice I’m a little clueless. Yesterday I got a call off of one of my ads from a homeowner who is very motivated to sell his property. The house is worth $1.2 million and that’s about what he owes on it.
I’ve heard that high priced properties like this aren’t really good candidates for sub2 purchases. Before I walk away from this, I was wondering if anyone would try to tackle a deal like this and, if so, how would you go about structuring it.
Does that include all past due payments, penalties, taxes, hoa dues, etc? Is there a rental market for homes in that price range? With the payments you would be taking over, would the property cashflow as a rental? Or could you owner finance it where you are? I’m not experienced in practice either with sub2, but I am assuming you would not be able to refi, especially with a no-equity/non-primary…
Who have you heard this from? Not from anyone who knows what they’re doing, I’m guessing.
Like any high-end property, it takes time to move them. The buyer pool is much thinner. However, ‘that’ buyer pool has MONEY.
This may be too advanced for a discussion here, but one approach is to get an “Option to Sub2” the property. That is, an option doesn’t obligate you to do a deal, but gives you time to market the house for someone who would appreciate seller financing. Once you’ve found a buyer who has an adequate down payment (5% to 10% or ?? whatever you need/want) of the sale price, over and above the loan balance) you close with the seller by getting the title, and then seller finance your end/user buyer with whatever instrument you want; land trust, land contract, etc.
I would only escrow a deed made in favor of the buyer, but I would not transfer title until you have been paid off. Meantime, your end/user buyer gets all the tax benefits due him, including mortgage interest deductions and depreciation, etc. This would be a vanilla “contract for deed.”
I would be sure to use a note servicing company, too, that will both receive and make payments on behalf of all parties concerned. This keeps the buyer out of your hair (and the seller, too)
You will need to get copies of the mortgage docs, pin numbers, ss numbers for the primary borrower, maiden names, and the rest, so that you can administrate the loan without having to involve the seller once the sale has occurred. You also need to get a new insurance policy, and leave the current seller’s policy in place; converting it to a landlord policy.
Thanks and nice sharing information.
Check out previously record of building are the ex owner give any tax to government or not. I suggest to hire services of real estate agent who have much information where is your building.
I would do exactly what Javipa suggested, but only if you would get a decent monthly cashflow spread to make it worth you staying in the deal. If the underlying payment is too high for you to clear a decent chunk of cashflow per month you could always try to simply assign your contract with the seller to the end buyer (on an agreement for deed, contract for deed, land contract, or whatever is used where you live). You can demand a somewhat higher than average price since you’re offering seller financing, plus the numbers get “soft” the higher up you go. So you could get it under contract for the $1.2 mil and try to sell it for say, $1.3 mil and ask for $100k down (which is your profit). You are in and out. All of this assumes the house is in good condition.
If this is all over your head definitely educate yourself before getting involved. Check out the free podcast at flip2freedom.com the guy Sean Terry has several episodes which explains this concept in depth.